Explain the following means of payment in international trade:
- Bill of exchange;
- International bank draft;
- Travelers’ cheque;
- Electronic transfer.
Explanation
(a) Bill of exchange is a document drawn by exporters on importers. It is an unconditional order to pay a specified amount of money. It must be in writing. It is paid on a presentation at a determinable future date. It must be presented to the drawee for payment to be made. It could be discounted before the maturity date.
OR
Bill of exchange is “an unconditional order in writing addressed by one person to another and signed by the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person or to bearer.
(b) International bank draft: It is a bill of exchange drawn in one country and made payable in another country. It can be purchased at commercial banks which usually charge a fee that depends on institutions and the type of account the customer holds. It is drawn on a financial institution in the country of currency. It cannot be cashed but must be deposited into the beneficiary’s account. It is a safe way of sending funds to a foreign country in that country’s currency.
(c) Travellers’ cheque: It is a special cheque issued by a bank to its customers to enable them to make payments while outside the country. It is a medium of exchange that can be used in place of hard currencies. They are available in several currencies such as dollar, pounds, euros etc.
d) Electronic transfer: it is the transfer of money from one bank account to another, either with a single financial institution or across multiple institutions through computer-based systems without the direct intervention of the bank staff.